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The business world is a complex system of people and organisations, which, in a market economy
combine scarce resources, to provide goods and services to satisfy the community wants, with a view to
make a profit.
There are 4 categories of scarce resources:
1) Labour
2) Capital (= machinery)
3) Entrepreneurship
4) Land (=natural resources: minerals, forests)
Businesses and the society in which they function influence each other in a number of ways:
Businesses influence on society: Remember these 4 points:
1. businesses are catalyst for economic growth
2. they bring about a high standard of living
3. they are the source of technological progress, research
and innovation, and improvement to infrastructure.
4. the play a crucial role in supporting (e.g. through
sponsorships) education, arts, sports
Influence of society on businesses: (These influences are exercised through legislation)
Remember these 5 points
1. Social responsibility: businesses are expected to act
responsibly towards the community
2. Business Ethics: Managers are expected to maintain
high ethical standards (eg toward workers,
shareholders)
3. Affirmative Action: They have to create equal
opportunities towards every social group
4.Environmental damage: Business are forced to take into
account the preservation of the air, water and soil from
pollution
5. Consumerism: various actions aimed at protecting the
consumer from abuse and misleading promises.
Needs and need satisfaction
Human needs are unlimited. Abraham Maslow classify them into 5 categories.
5.Self Realisation needs (aiming at self development)
4.Esteem needs (eg prestige needs: bigger car, luxurious house..)
3. Social needs ( eg needs for friends)
2. Security needs (eg: insurance protection)
1. Physiological needs (food, clothes.)
He argues that humans try to satisfy the most basic needs (group 1), when these are satisfied, they
move to the need of group two. Until they reach the last group (no5).
Need Satisfaction: a cycle
Entrepreneurs, in order to produce goods and services for the community have to answer these 3
questions:
What must be produced? Consumer goods (eg bread, shirts)? or capital goods (tractors, machines)?
Who will produce these goods? Private organisations (eg companies)? or government-owned
organisations?
For whom these goods must be produced (this is a question of distribution of goods in society)
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2.
3.
4.
5.
Command (= communism):
1.
2.
3.
4.
the state only own strategic industries and leaves the less
important ones to private entrepreneurs
1. Business organizations They are privately owned, seek profit when they satisfy community needs.
The various forms are: Sole proprietorships, Partnerships, Close corporations, Private and public
companies.
2. Government Organizations: They are either non-profit seeking organisations which are funded
through taxes: e.g. Government departments, or Profit-seeking organisations that function more like
private organizations : (eg Eskom, transnet)
3. Non profit seeking organizations: They are private organizations that do not have profit as they
main objective: Sports clubs, NGOs, cultural associations
While economics aims at studying the entire economic system, business management is an applied
science that aims at studying the business organisation with the view of finding techniques, methods,
and processes which can help it to function effectively. That is to attain the highest profit using a
minimum of resources.
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In advanced nations the entrepreneur innovate, take risks and employ people. The strategic role of
small businesses in an economy is:
Producing products and services: they have less bureaucracy, are more flexible
Aiding big businesses: small businesses are useful as suppliers and distributors
for large corporations
Job creation: small businesses are most labour intensive, therefore, the majority
of a country workforce is employed by small businesses.
The entrepreneurial process
Entrepreneurship is the process of identifying, creating, or sensing an opportunity and of finding and
combining resources to pursue an opportunity until it becomes a successfully established business.
Step 1. Decision to become entrepreneur (= enter/ not enter the business world?)
Step 2. Entrepreneurial anilities and skills (= Do I have the necessary entrepreneurial abilities and
skills?)
Step 3. Resources (= Do I have the required resources, or can I get access to resources?)
Step 4. Opportunities and ideas (= Do I have an above average chance that the idea will work?)
Step 5. Feasibility (= Does the feasibility analysis show that the opportunity is feasible?)
Step 6. Business plan (= Did the business plan convince investors, banks?)
Then, proceed with the implementation
Skills required for entrepreneurship
Strategy skills
Planning skills
Marketing skills
Financial skills
Project management skills
Human resources skills
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* Legal personality = ability of an organization to acquire assets and liabilities, independently of its
members assets and liabilities.
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Entry Strategy
Buying an existing business
Questions to ask before buying an existing business:
Why is the business being sold?
How much does is cost to set up a
similar business from scratch
What will be effect of the former owner
leaving?
How much does the biz cost
How good is the cash flow, and
returns
Advantages:
* the business is up an running
*The success (of failure) has been already
demonstrated.
*The existing business is probably located at the
best spot.
*The business has already experienced workers,
suppliers, and equipments. Easy to calculate its
capacity.
*The new owner can learn from the previous.
*The purchase can be a good bargain.
Purchasing a franchise
Definition: Agreement between a Franchisor and a franchisee to give the
franchisee the right to use the name of an existing business, distribute its
products/services, access to its suppliers E.g. KFC, 7eleven, Wimpy
Advantages:
*low risk. Better chances for success in the 1st year
*Management support from franchisor
*Initial assistance/financial support from franchisor (finding
suitable location & staff)
*Training provided by franchisor (administrative &
technical)
*Buying bulk through the use of Franchisors suppliers and
discounts negotiated by him
*The Breakeven point is reached sooner
There are 3
Entry strategies
contract.
Disadvantages:
Private
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Environmental change
Environmental change = continual shift from the known situation to the unknown, for the stable to the
unstable.
Examples of change:
Politically: end of apartheid, new government, new labor laws
Economically: high interest rates, inflation, unemployment
Socially: new demographic patterns, people are closer since the end of
apartheid.
Internationally: End of international sanctions, need for competitiveness on
the international market, globalization of markets
Physically: Raw materials become scarcer
Technologically: new innovations at an increased rate.
3.The Microenvironment =
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Environmental Scanning
Environmental Scanning = monitoring of the environment to detect those factors that pose a threat and
those that are an opportunity to be seized by the business.
Three levels:
Basic scanning: Recourse to specialized publications to keep abreast of environmental change:
government reports, financial journals, reserve bank reports, organizations own data
Advanced level: hiring internal staff or external consultants be carry out special monitoring
Environmental researches.
More advanced level: establishing of a permanent scanning unit within the business itself (more relevant
to big businesses).
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Definition
Importance of management
5.
Management levels
6.
Management functions
Management activities are grouped together according with the particular activities that are taking
places. Seven functions, which usually take place at the middle management level.
1. General management
2. Marketing management
3. Financial management
4. Production (or operational) management
5. Purchasing management
6. Human resources management
7.Public relations management
6. Management Roles
Managers assume 10 roles grouped into three categories:
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Group 1. Interpersonal Role:
1.
2.
3.
Leader
Representative figure
Good relationships (with public)
Troubleshooter
Allocator of resources
Negotiator
Entrepreneur
Monitor
Spokesman
Analyses
7. Management skills
Four skills are required of a manager. Depending on the management level, those skills vary in
importance.
1. Interpersonal skills
2. Technical skills
3. Conceptual skills
4. Analytical and diagnostics skills.
See table in the relevant chapter.
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3. Ouchis Theory Z: Combines American (type a) management practices with Japaneses type (j). See
relevant table in the book.
Other approaches:
Excellence movement
Total Quality management
Dynamic engagement
Learning organization.
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Definition
Planning is the first task of the management process. It is the activity that determines (1) the businesss
mission, as well as the long-term, medium-term and short-term objectives. And
(2) The methods and processes to be used to achieve those objectives.
2.
Perspectives to planning
Importance of Planning
Planning
a) Gives direction
b) Promotes cooperation
c) Helps the business to keep abreast with technology
d) Forces managers to look into the future
e) Promotes cohesion
f) Promotes stability
4.
5.
Planning Process
Three steps:
1.
2.
3.
Goal setting
Development of plans
Implementation through the rest of the management process
Setting objectives
* Objectives should be measurable
* The responsibility of their achievement should be allocated to a person or a group
* Objectives must be consistent:
- horizontal consistency: there is no conflict between goals of
different departments.
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Here, managers consider different options/ alternatives that can be applied to attain the plans set at
step1.
Factors to be taken into account when choosing between different alternatives:
External factors such as market factors and macro environment factors.
Strong and weak points of the business; strong points may be: possessions of a patent, of a raw
material, never expose your weak points.
Rational decision-making when weighing cost/benefit of each alternative
Strategic planning
It is developed by top management in broad terms (no concern to details) to realize the mission of the
business.
Characteristics;
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Examples of strategies:
Concentration
Market development
Product develpement
Innovation
Horizontal integration
Vertical integration
Joint venture
Diversification
Rationalization
Divestiture
Liquidation
Functional planning
Medium term planning carried out by middle management. Each department carries out its plans (in
cooperation with top management). See Vertical and horizontal consistency.
Many businesses rely mainly on functional planning due to environmental uncertainties.
Developed by lower managers for periods shorter than 1 year. Concerned with day-to-day performance
of tasks. Budgeting is the main method used to allocate resources for short term plans.
Step3 Implementation
After Goals are set (step1), and plans to attain them are determined (step2), implementation is carried
out through the rest of management process (organization, leadership and control).
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2 basic principles:
Specialization:
Labor is divided to take advantage of specialized skills/ knowledge. Workers are used
in their field of specialization. The most known example is the assembly line (created
by Henry Ford).
The more a business grows the higher the
pressure to divide its numerous activities into
smaller tasks.
Advantages:
*reduced training costs
*Reduced transfer time
*Development of specialized equipment
*Individual abilities are used to increase productivity
Departmentalization
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Forms of departmentalization:
(a) Functional organizational structure
Activities are resources are grouped following the functional structure. E.g.:
Managing Director
Financial manager
Marketing manager
HR manager
Managing Director
Manager:
Consumer products
Manager:
Industrial products
PR manager
marketing manager
Manager: Limpopo
Manager:
Electronic equipmt for Air force
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4. Authority Relations
After being allocated tasks and resources, people need authority to carry them out.
Authority = Right to command/ demand action; to take action to compel execution of activities; and to
punish.
Responsibility = obligation/ commitment of middle/ lower managers (or even subordinates) to carry out
tasks and account on them.
Delegation of authority: Formal authority flowing from: Owners Top management Middle
management Lower management subordinates.
Acceptance theory of authority = authority originates from subordinates: no one has authority unless
subordinates accept orders and carry them out.
Centralization of authority = top management holds all the authority and delegates little to middle and
lower management.
Decentralization = is the opposite.
Line authority = Authority is delegated down the hierarchy line: OwnersTOPMiddleLower.
Staff authority = special authority based on special knowledge or skills. Legal adviser, marketing
research section
5. Coordination
Coordination = integration of groups tasks and objectives at all levels departments to enable the
business to function as a whole. Developing harmony of aims.
Mechanisms to promote coordination:
organization chart
The budget
A committee
The brad policy and procedures
The information system of the business
Span of management: relates to the number of subordinate each manager has authority over.
Tall structure: few subordinates per manager, many management levels, long line of command
Broad/ flat structure: many subordinates per manager, few management level, overworked managers.
(see book)
6. Informal structure
Informal structure = structure that originates from people regularly interacting in the work place. Informal
relations exist between groups or between people.
Advantages:
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